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Economic Growth Outlook Unchanged Following Recent Hurricanes
Wednesday, October 18, 2017 6:40 AM

The full-year 2017 economic growth forecast remains unchanged at 2.2 percent following expected offsetting hurricane-related impacts to GDP growth in the third and fourth quarters, according to the Fannie Mae Economic & Strategic Research (ESR) Group's October 2017 Economic and Housing Outlook.

For the third quarter, it is likely that consumer spending growth weakened and residential investment declined sharply, partially offset by gains in business equipment investment, inventory investment, and trade. The hurricanes appear to have dragged on home sales—already suppressed by lean inventory—while also confusing the employment picture due to conflicting messages between the headline and details of the September jobs report.

Looking toward 2018, the ESR Group expects economic growth to moderate to 1.8 percent, with upside risk from potential tax reform and downside risk from restrictive trade policy and geopolitical tensions.

"The impacts from this season's hurricanes on the U.S. economy were wide-ranging but should dissipate over time," said Fannie Mae Chief Economist Doug Duncan. "These include the loss of momentum in consumer spending and residential investment, as well as a decline in September payrolls and August home sales and contract signings. We expect economic activity to rebound in coming months. The recovery will likely be slower for home sales and home building, however, as the labor shortage and rising material prices will likely worsen after the hurricanes, exacerbating already-tight inventory.

"While we expect full-year economic growth for 2017 to come in at the same rate projected in our prior forecast, we now believe that total home sales will be essentially flat this year compared with the moderate rise predicted in the prior forecast. Despite muted underlying inflation, we continue to expect the Fed to raise rates for the third time this year in December."